Novell Still Plagued by Poor Software Sales in Q3

Novell Wednesday announced third-quarter fiscal 2000 results indicating that the software vendor still has problems with the sales side of its global operations as it struggles to restructure its business.

For the period ended July 31, the company reported net income of $US8.6 million and earnings per share of 3 cents on net revenue of $US270 million. The figures compare poorly with the year-ago quarter when Novell recorded net income of $US49.3 million and earnings per share of 14 cents on net revenue of $US327 million.

Six analysts polled by First Call/Thomson Financial predicted that Novell's third-quarter mean earnings per share would be 2 cents. The company beat the analyst estimates by a penny.

"Although we met our total revenue and earnings objectives for the third quarter, we are nonetheless disappointed by continued weakness of packaged software sales globally, and especially our poor performance in Europe," Novell Chairman and Chief Executive Officer Eric Schmidt said in a conference call Wednesday.

Schmidt characterized the company coming to grips with the problems in its sales operations as being "a costly unintended learning experience," adding that Novell has previously "screwed up" its channel, creating unintentional conflict between its direct and indirect channels.

The software vendor still believes it will take until early next year to sort out the problems in its business, according to Schmidt, with the company midway through such restructuring. In the fourth quarter, Novell will take additional action to ensure its expenses are in line with revenue, he added.

Novell is working hard to more fully move its NetWare network operating system and GroupWise groupware software to the Internet, Schmidt said. Speaking of the company's 4 million-plus NetWare established user base, he said, "Think what we can do when we move that business to the Web." Positioning the Internet as becoming the data center of the Web, Novell's storage management capabilities should be a good revenue generator, Schmidt said.

When Novell announced poor second-quarter fiscal 2000 results in May, the company also unveiled a substantial reorganization plan for its operations, splitting its businesses into four units to better focus on meeting customers' needs. The main cause of Novell's poor financial showing in the second quarter was plummeting sales of its software in the worldwide reseller channel, according to the company. [See "UPDATE -- Novell Reorganizes Operations Amid Poor Q2," May 23.] Looking at the vendor's third-quarter fiscal 2000 results by region, revenue was down in all areas of the world. The worst performance was in Europe, the Middle East and Africa (EMEA) where revenue was $US70 million, a fall of 30 percent over the year-ago quarter. U.S. revenue fell 12 percent year-over-year to $US160 million, revenue in the Americas outside of the U.S. dropped 12 percent to $US17 million, while in Asia-Pacific, revenue was down 8 percent to $US22 million.

Looking at product revenue, NetWare server software sales fell 29 percent year-over-year to $120 million, while revenue from older Novell software fell 42 percent to $16 million.

Novell tried to allay user concerns about the future of NetWare recently with a roadmap designed to show that NetWare lies at the heart of the company's future product strategy. Novell customers have seen the vendor's strong public focus on its directory technology as perhaps putting NetWare out in the cold. [See "Novell Lays Out Road Map," Aug. 14.]Upcoming will be Modesto, a codename for a NetWare version designed for Intel's 64-bit Itanium processor and Six Pack, a release of the OS featuring multiprocessor support.

Rumors circulated earlier this week that IBM might acquire Novell.

Novell's board of directors has approved the company spending a maximum of $500 million on repurchasing its shares on the open market.

The company announced its financial results after the markets closed. Novell's shares ended trading Wednesday at $US10.94 up 0.6 percent from Tuesday's market close.

Novell, in Provo, Utah, can be reached at +1-801-222-6000 or via the Internet at http://www.novell.com/.

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